SINGAPORE (Reuters) – The dollar rose on Monday after data on Friday showed US producer prices rose more-than-expected last month, pointing to persistent inflationary pressures and a chance for the Federal Reserve to keep interest rates higher for longer.
The dollar rose 0.35% against the Japanese yen, to 137.05. Against a basket of currencies, the US Dollar Index gained 0.12%, at 105.18.
The euro was last down 0.2% at $1.0509.
The pound sterling fell 0.31 percent to $1.2229 in Asian trading on Monday, while the pound fell 0.34 percent to $0.6773.
The kiwi similarly fell, down 0.34%, to $0.6393.
Data released on Friday showed that the US producer price index for final demand in November rose 0.3% from the previous month and 7.4% from a year earlier, a slight surprise from expectations for an increase of 0.2% and 7.2%, respectively.
“There was little concern about how inflation will continue to rise and encourage the Fed to keep policy at a constrained level for longer than previously expected,” said Carol Kong, currency analyst at the Commonwealth Bank of Australia (CBA). .
Traders have also been on the lookout as they prepare for key risk events this week, including US inflation data and a slew of key central bank meetings.
The Fed is taking center stage again, and is widely expected to raise interest rates by 50 basis points, though the focus is on the central bank’s updated economic outlook and Fed Chairman Jerome Powell’s press conference.
“If he talked more about the risks to the economy… I think the markets would probably be seen as dovish by the markets, and of course, the markets like the dovish comments and how the FOMC would pay more attention to the downside risks to the economy.” CBA Kong said.
The Bank of England and the European Central Bank (ECB) will also meet this week, and each is also expected to raise interest rates by 50 basis points.
“We have been told by ECB officials that they care more about core inflation, which has remained high,” Kong said of the upcoming ECB meeting.
“If they raise 50 basis points… they may follow up with some hawkish comments at the Lagarde conference after the meeting.”
Ahead of the FOMC meeting, US inflation data for November is due on Tuesday, with economists forecasting the annual core inflation rate of 6.1%.
“The market reaction to US inflation surprises has been uneven so far in 2022, with negative surprises having a greater impact than bullish ones,” said Barclays analysts.
They added, “Inflation data is likely to be the bigger driver of the two, (given) the Fed’s guidance for smaller increases,” referring to the effects on the US dollar. The external yuan fell slightly to 6.9798 against the dollar, weighed down by concerns about a possible rise in coronavirus cases, as China eased its strict coronavirus restrictions.
Reporting by Ray Wei. Editing by Lincoln Feist and Bradley Perrett
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